A time capsule of the greatest financial mania in the history of mankind, told in real-time by regular folks and patriots. May future generations better understand the madness of crowds, and how power and money corrupt.

September 16, 2007

cut 1/2?cut 1/4?no change?divided vote?change in bias?admit they royally screwed up under Greenspan?mention 'moral hazard'?let the dollar melt down in order to bail out hedge funds and banks?don't move and let the market know they're done with bubbles?

I predict a token 1/4 point drop on Tuesday to settle the markets temporarily...they need to appease the market to avoid inducing a panic since everyone and their brother is predicting a drop. I think they understand that, if they don't cut, they risk pushing over the first domino...

I predict 1/4 and hope for no move. The dollar is already taking a beating, if he lowers only GOD knows what will happen next and as we know, it will NOT fix anything on the credit markets. The issue is not the rate, but the loss of confidence in the markets.

To the anonymous that posted at 11:02 PM. If he lowers the rate the DOLLAR will take a huge beating, trust me.

A cut not only means that Bernanke is pleasing the markets now, it means he will in the future. And so, traders will price the dollar accordingly. And this will not be fun to watch, trust me. It will be a total collapse in the dollar.

Anonymous said... I predict a token 1/4 point drop on Tuesday to settle the markets temporarily...they need to appease the market to avoid inducing a panic since everyone and their brother is predicting a drop. I think they understand that, if they don't cut, they risk pushing over the first domino...

September 14, 2007 11:02 PM----------Agreed, token cut of 1/4 w/ bias in statement hinting they are concerned and will not hesitate to act if needed to address the liquidity problems. Just might toss in some more discount window cutting too.

1/4 cut sacrificing the dollar for the markets and banks. Inflation roars and dumping of the dollar begins en mass.

Housing is toasted all the quicker as the cost of everything rises while lending standards tighten further as a greater portion of peoples incomes cover the necessities of food gas and energy which will all rise.

China: The Latest Interest Rate HikeThe fifth increase this year sends a strong signal to markets that Beijing is willing to take more aggressive action to slow down inflation by Chi-Chu Tschang

The People's Bank of China raised interest rates again, four days after China announced that August's inflation index rose to a 11-year high. Starting Sept. 15, the benchmark one-year lending rate will rise to 7.29%, from 7.02%. The one-year deposit rate will rise to 3.87%, from 3.60%.

The markets had expected the Chinese central bank to raise interest rates for a fifth time before the end of this year. China's policymakers' most recent rate hikes—coming three weeks since the last increase—coupled with other measures taken last week, have sent a strong signal to the financial markets that Beijing is willing to take more aggressive action to keep inflation under control.

China's central bankers have seen inflation rise higher than their original forecasts primarily due to soaring food prices. Earlier this week, China reported that the monthly inflation rate for August rose 6.5% to its highest level since December, 1996.

Negative Interest Rate EnvironmentIn the first eight months of this year, inflation rose 3.9%, which is higher than the Chinese bank's original one-year deposit rate of 3.6%. Chinese who leave their money in bank deposits have seen any expected earnings from interest rates eaten away by inflation. The central bank is concerned that this is encouraging people to withdraw their money and invest it in real estate and stocks, fueling asset bubbles in these two sectors.

"This negative interest rate environment is not conducive to a healthy development of the Chinese economy or the financial markets. That's the reason the PBoC hiked interest rates five times in a row this year," says Ha Jiming, a Beijing-based economist with China International Capital Corp.

Expecting Further TighteningWhile economists applaud the Chinese central bank for relying more on market-oriented tools to prevent the economy from overheating, some argue that allowing the yuan to appreciate at a faster pace against the dollar would be more effective in taming inflation. However, Beijing has been loath to let the Chinese currency appreciate faster than the 5% annual increase expected by the markets, lest they be seen as caving to threats from Capitol Hill.

So for now, economists expect the Chinese central bank to further tighten monetary policy in the coming months. In a research note, Goldman Sachs (GS) economist Hong Liang wrote, "Going forward, we expect the monetary authority to implement more tightening measures including one more 27-bp interest rate hike, more aggressive withdrawal of liquidity (possibly through further RRR hikes), and stepped-up moral suasion on commercial banks to curb lending."

Police have been called to several northern rock banks after several people makeing a run on the bank were mugged and groped by desperate f@cked borrowers. The police have asked the public to remain calm.

The underlying issue here is that people borrowed money to pay for an asset ‘house’ a lot more that the asset ‘house’ was really worth.This loan took on a life of its own and was treated as an asset itself, young MBAs could not get enough of this new seemingly sophisticated way of making lots of money, by figuring eternal increase in housing values plus compound interest profits.So the wheeling and dealing began, Hedge funds where created, an entire economy fed off of this, from Realtors, Appraiser, RE lawyers Mortgage companies Home builders, plus many people re-financed and spent this extra money on everything from cars to flat screen TVs etc.

Now that the original borrower realizes that he/she took out a loan that costs about 60-70% of their income and living on constant edge of bankruptcy, and is pretty much stuck cause the house is now worth less then the loan amount. The smart MBAs are now stuck holding this loan packages.Most people cannot afford a home even with the recent small drop in prices, inventory is still growing.

This problem was exaggerated all across Europe because of the added euphoria of the possibilities the EU can create.

This problem is not a ‘Subprime’ problemNot a ‘Commercial paper’ problemNot an ‘interest rate or interest rate reset’ problemNot a banking crisisIt is an ‘overpriced Housing’ problem And until Housing prices are inline with affordability it won’t matter if the fed lowers interest rates.

The people crying for the fed to lower interest rates think that it will create a demand for housing again, and life would go back to good old easy money days.It won’t.They never really got the issue to begin with.Most who bought during the bubble days have no clue on how to manage their finances and don’t understand much about interest rates, they just bought cause their neighbor got rich selling their house and the realtor told them that if they don’t buy today prices would go even higher, it was nothing more then herd mentality.All while this was going on the brainiacs at CNBC where saying it’s the low overnight interest rates that is feeding this boom, even though 30 year fixed mortgage rates only went down from 7.25% to about 5.25 %.

So you see, Interest rates were only 1 factor behind the bubble.At this time even if the fed would cut a full 2% it wont help this situation, the herd has broken up and possibly running the other way.

Europe is in much worse shape due to the larger income to housing prices gap.

China told Bernanke not to cut the interest rate. They did this by selling US treasuries recently while the not so smart US investors were buy them like crazy, thinking they're a safe haven as fear kicks in.

The Forex market is like a massive battleship compared to Wall Street's stock market, a little kid toy boat used in the bath tub.

We're going to witnes a massive crash on Tuesday as Wall Street figures out that China's got us by the balls!

Hi all I'm new to this blog but I read it daily. If they drop it a 1/4 everyone is looking for another 1/4 to 1/2 point drop before the end of the year. It needs to be raised not lowered. It will be interesting to see if the FED is looking long term on this or if they cave in.

They will cut early, deeply and often. The Fed is not independent. It is the little punk-ass bitch of the politicos in Washington and of Wall Street. It's not just 'yes sir', it's how much do you want to cut?

At LEAST half a point cut.

Then watch inflation (manifested by high oil prices and higher import prices, and stock market increases) take a jump.

Enjoy watching the Fed take a big fat steaming dump on the average joe to bail out the fatcats on Wall Street.

ditto on the 1/4 point- buying some time so all the dumb dumbs can come out and say "we have a bottom" everything is ok-

HP'ers know where it's at-! Too bad we can avoid buying real estate for now, but it won't be hard to spot a $10 loaf of bread on the shelves. Wonder how this holiday season is going to look when all those people who think they are still rich, find out they aren't.

Personally, I think they will not move.The rest of the world is beginning to raise rates, that acts as a FED rate cut for us.So does the massive amounts of money that has been entering the world systems for "market liquidity needs".That IS essentially a rate cut.Secondly,If they do cut, things are worse off than we think.As stated earlier, they do not NEED to cut, they already have;

Thank you all for your kind and well thought out suggestions for what I should do with the rate issue this tuesday. I have given this much thought over the last several weeks, and I have elected to have my assitant order me a bran and raison muffin to go along with my "mandatory" Star Bucks latte for the morning of the meeting. Ahem....then I will do whatever I damn well please regarding your silly paper money discount rates. And lets just see you try to do anything about it, peasent.

1/4 on Tuesday, with 1/4 on the discount rate as well. This is the de-facto rate now anyway. 4.5% by the end of the year in two additiona 1/4 cuts. Then they hold and talk tough to keep the dollar from falling further. Liquidity added as necessary. Meanwhile congress acts with some sort of bailout, 600k conforming limit nationwide, relaxing FHA standards, pop the caps on Freddia and Fannie. Objective is to dull the pain but allow things to play out.

My dream is that Al not only addresses inflation as a definitive concern but cites the cost of war as a reason to encourage savings / investment in US Treasuries in his interview on 60 Minutes. Open the door for Ben to divert the issue to questionable foreign policy ...

No change in rates, prudent economics prevail, let the chips fall where they may and the rest of the weak fall from the pack, market takes a hit and corrects itself within a year, bad signal to the world if they bail out the flippers and speculators who used mortgages/homes as securities, when they are only meant to live in and raise families.

Banks want a rate cut but they don't want the dollar to crash or else all those fixed loans out there will be earning negative interest income. I say just get it over with and have the US Treasury buy CDO's for 50/100 and MBS for 80/100 and no help for the flippers. We know it's going to happen anyway. This way all speculators get bitch slapped a little bit but not enough to kill them

Cut .25 and save the ammo for later. He knows he can't cut to 1% again, he can't even go to 3%. He will say in the statement that inflation is "contained" and he sees increasing employment and a strengthening economy.

Market jumps 2%.

He has to lie, try and get the sheep whipped into a frenzy and hope momentum carries the country out of pending recession. What else can he do?

Prediction: First came the tech bubble, then the housing bubble, now the commodity bubble. Ag and metal prices will sky rocket, we'll hear "they're not making any more oil" Wheat will go to $12-$15 per bushel, copper to 5 or 6. There will be an even greater rush to buy farm land.

Anonymous said... No change in rates, prudent economics prevail, let the chips fall where they may and the rest of the weak fall from the pack, market takes a hit and corrects itself within a year,================================Prudent economics prevail? Since when have we seen prudent economics prevail, 1965?

A year ago I predicted in writing that BB will hold the rate and than raise the rate 1/4 by the end of the year .

The problem with Wall Street and guys like Cramer and Kudlow are that they need something to happen to justify a bull run with the stock market .A rate cut is not going to make investors take on risky loans anymore and that is the issue . The gig is up regarding easy money .

1/4 cut with the complete idiots who host cable new/talk networks celebrating and using words like "fed, cut, stable, strong, prime, etc" while moving their hands a lot to look like they know what they are talking about.

This will not help the bubble at all but it will worsen the inflation that arrived a long time ago. Expect prices of everything to go up and the dollar to buy a lot less.

This X-mas will be the bloodbath when retailers fail to meet expectations on main street. When the final numbers are in there will be a major correction in the markets in January of 08 followed by massive layoffs and closure of firms.

any body ever notice how many fu*king times these morons on cnbc mentioned a rate cut this week every dam minute every show these people want a rate cut to save their own fu*king jobs , fu*k them !!!! i hope all these dam morons on cnbc get laid off . anyone who takes cramers advice needs to have their head checked .

Long time no see. Sorry I was on vacation. Nice to be back. Let's see what have I missed...Dow at 13,500, s&p almost 1500, median home price down 2% from peak and of course HPers seeing a black helicopter behind every tree.

Ok folks this is what's happening...The feds will cut the rate by .25 basis points, and keep cutting rates until the dollar falls off the cliff. When the dollar is toast they will introduce...(drum roll please)

The Amero

Americans will be soo proud of the new North American Union the official language will be Spanish with a little French for variation.

The fed rate is just a target. The market has already moved the rate lower by .25 and has been there for a while. A .25 cut brings the target to the actual rate, which is what will happen. Any more than that will cause panic, any less will tell the markets your on your own.

Cut by 1/4, discount rate cut by 1/4 to 1/2 - but Big Ben is cornered in a Box right now. Inflation to the left (darn crude), credit crunch/consumer recession on the right. I think he'd live with inflation to stave off recession. That said, with dollar weakening to such a degree - I am just awaiting the foreign revolt.

I *wish* he would do nothing and let this finally play out once and for all - all this pushing of bubbles from 1 asset class to another is sad. Worldwide central banks dropped $400 billion of capital into their financial systems and the banks are still hording it, probably giving it to their hedge fund buddies to invest in equities. Instead of using it for reasons they should - lending to each other. Love it. Keep the bubbles coming.

I read a blog somewhere about 1 month or so ago that cited some incidents about the budget, the war in iraq, the tax cuts and the problems in the housing market. The government just does not have the money to bail this one out and there is really nothing they can do about it and decided to just let the whole thing blow rather than commit anything to help failed flippers and people who bought what they couldn't afford so on and so forth. I say they are going to let it blow. They (whoever they are) said the government needed to have more money in their savings account and this whole mess was gonna cost somewhere in the neighborhood of 7 trillion dollars and they didn't have anywhere near that amount. I don't know if it's true, blogs and I have been wrong before or it has taken a while to shake out what is predicted but I read lettin' it blow.

Actually Most people on wall street know that lower interest rates won't help housing.All they know is that in 98 when Greenspan lower rates is that the stock market went up over a 1000 points - of Course it crash later. But, that is later.The market has been going up lately in anticipation of a repeat of 98-99.

To the anonymous that posted at 11:02 PM. If he lowers the rate the DOLLAR will take a huge beating, trust me.

A cut not only means that Bernanke is pleasing the markets now, it means he will in the future. And so, traders will price the dollar accordingly. And this will not be fun to watch, trust me. It will be a total collapse in the dollar.

Danny

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Yes, I agree. I think betting on a falling dollar is a smart bet. A weak dollar means that the trade imbalance will shrink and, I believe, it will make US goods more favorable therefore shoring up our manufacturing base, helping us become more competitive with China.

US goods more favorable therefore shoring up our manufacturing base, helping us become more competitive with China

Unfortunately, most of our manufacturing base has been dismantled and shipped overseas. We would have to build everything from scratch and retrain all those worthless marketing, sales and service people to do some real work.

The Federal Reserve was created in secrecy a few short years prior to the great depression. It's source of power is the issuance of credit and the USD. In the months leading up to the great depression, when everyone was expecting a lowering of the interest rates, the FED actually raised the rates. An old friend that lived through those times told me that a commercial plaza that his family owned at the time valued at one million dollars, was sold a few years later for 50K.

Even if the market makes new highs I fully expect that we are headed in a severe deflationary environment.

For those that remain employed in those times, there will be many financial opportunities, for the rest life will be very difficult.

Educate your kids to be savers and to only buy things that they absolutely need.

All of the numbers used by sound economic decisions seem to be going quite well, outside of the gambling done with mortgage based securities and the risk that was transferred to other sectors, I seriously doubt that the Fed will lower rates, Poole already said it would take a catastrophe, so in other words I do not think that there is a catastrophe now, maybe in 5 -6 months it might rise to that, but now it would be the wrong time to lower rates, let the bad risk work its way out so the stock market can reflect numbers that are more or less realistic, and fall back to around 10,000-11,000 where it should be.

I'd put odds at 75% that he will cut rates and further sacrifice the dollar to try and save the idiots in hedge funds and banks that created this mess, and it will in hindsight be judged as the beginning of the end of our economy and the dominance of the U.S. as a world power. Now is the chance to let the speculators eat the cake they baked, which is the only way out of this mess.

Unfortunately for the rest of us, the interests who fund campaigns (and therefore, most of our bought and paid for politicians) have decided to the contrary that they are best served by turning the U.S. into the third world by trimming wages until we can produce at the same cost as in the third world, and Ben will probably cooperate by pounding the dollar until we can all live like they do in China or Tijuana.

Housing is toast no matter what they do so you would think that at least they would at least try to save the dollar. That would be the prudent thing to do and would reward savers and help us "take our medicine" now as opposed to later. The longer you postpone the pain the greater it will be.

In addition, inflation is raging (housing, fuel) and buying power of the $$$ is already severely eroded.

Unfortunately, most of our manufacturing base has been dismantled and shipped overseas. We would have to build everything from scratch and retrain all those worthless marketing, sales and service people to do some real work.

If the USD tanks the jobs will not come back to the USA. Latin America is effectively pegged to the USD, except Cuba and Venezuela.

They manipulate currencies like Chinese to keep exports high.

In the future, there will be terrible border security problem with Canada. Gringos will be jumping the fences and the Mounties will have M-4's and will use them.

Big Tar Sand corporatists in Canada will plead for "guest worker programs" to import some of the masses of unemployed white and brown Americans.

Domestic citizens will be outraged because an American will do the same job, but with no unions, no safety and no time off, for $CAD 40k a year that they pay a Canadian $CAD 150K (= USD 300K) to do.

American politicians will be agitating for civil rights for "All Americans, whatever their continent" in Canada, and for Canadian amnesty to legalize the "undocumented" masses toiling in Walmart-Canada and Alberta.

Bernanke is full of suprises, but I suspect he'll raise rates just to show Wall Street he's in control. Not to mention that it would be the more prudent thing to do. I can't wait to see what he does do either way, it's like the entire world is holding it's breath.

I hear there are about 20,000 condos in Miami that people don't want. Jump right in

Some things even a bottom feeder like me won't buy... Besides, when they really don't want them no one will be paying attention to inventory #'s. People will be too busy trying to make the shrinking buck and just stay afloat. It's the classic story of redistribution of wealth. You work; get in debit to pay for assets, and then sell depreciated assets after being productive enough to incur the debit. You loose everything and remain in public service while the wealthy pull the flesh from your bones. You are so busy that in a few years this all plays out again as if it never happened before. Repeat ad nausea while the dollars value remains irrelevant.

OK people, think on your own for a second here. Forget that the media ever said anything about a cut. Forget all you've heard about .25 being baked in. Think for yourself for a second.

Besides saying they will do "whatever it takes" in the event of a MELTDOWN (not a wimpy 10% (now 5%) drop off mega-inflated index levels), everything any Fed official has said has been HAWKISH (even if mildly so).

The MSM instantly jumped from "fed is neutral" to "fed is going to lower for sure, but how much". What happened to the step "fed signals they are starting to think dovish"? The fed usually signals (at regular meetings) that they have shifted stance, BEFORE the actual result of that new stance (cut/raise).

The *only* thing that is somewhat convincing besides MSM/broker whining for a cut is that the actual fed funds rate has been 5.0% for a while, in stealth (see financialsense.com or listen to Santelli, the smartest guy on CNBC).

Maybe, just maybe, Bernanke isn't a wimpo puppet as most think a fed-head has to be. Maybe, just maybe, he understands the implications of a cut for the $ and gold/oil. Maybe the Chinese have called him up and threatened to kill the USA if they cut and make the Asians lose 10%/year on their T-bills (lower yield + dollar losses combiend). Don't bite the hand that feeds you.

Being a cynic, I'm apt to believe the Fed will be stupid here and cut as everyone expects. But you MUST think outside the MSM box and realize that it is not a sure thing.